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Maximize your move

A site selection expert has advice for any metal fabricator looking to relocate or expand its business

If you were to look at The FABRICATOR’s 2016 FAB 40 list of successful U.S. job shops (www.thefab ricator.com/fab40), you’d notice that 2015 revenues were flat or a little below the previous year’s numbers for several metal fabricators. That might be cause for concern in certain economic recoveries, but after four consecutive years of fairly robust revenue gains, a little slowdown in sales is not the end of the world. Many metal fabricators remain cautiously optimistic about the future.

With decent economic headlines and a seemingly solid foundation on which to try and build their business, metal fabricators are in a position for long-term planning. For many, that might involve a new facility or another location near a major customer or potential new customers.

Such decisions should not be made likely. Any move or expansion has an impact on the labor force, product delivery, and operational costs.

The FABRICATOR had a discussion with site selection expert Dennis J. Donovan of Wadley Donovan Gutshaw Consulting to cover the main points that a metal fabricator contemplating a move should consider. In short, focus on the business impact, not just potential tax incentives.

The FABRICATOR: What should be the main focus for a metal fabricator looking for a new site for relocation or expansion?

Dennis J. Donovan: Generally speaking, it depends on the sensitivity of shipping costs and delivery times to customers. A lot of metal fabricators really need to be in the area of next-day delivery by truck for the bulk of its customer base. However, if you are making valves, you can probably be anywhere.

With that in mind, the first step of business in any new site selection is to define a search region that allows you to deliver goods or product to a bulk of customers, next day. Once you identify that region, a number of factors come into play.

FAB: What are those other factors?

DJD: No. 1 has to be labor. In this industry, if you need CNC machine operators, it is becoming increasingly difficult to find these skills. So it’s really important for a fabricator to delineate what its initial and future head count requirements are going to be and determine what percentage needs to be experienced in that particular trade versus entry level. If you rely more on experienced personnel, you have to get into a market that has a lot of these skills. That also means that it is going to be very competitive and costly for this talent.

A word of caution for those companies that rely on experienced personnel with metalworking skills: If you could be outside the commute zone of major automotive companies and Tier 1 suppliers, that would be good. They eat up a tremendous amount of these skills, and they pay high wages. It’s very difficult to compete against them. That is something to really consider.

For example, let’s say that we need 50 CNC machine operators. These are not the setup people; these are the operators. And half have to be experienced, which means 25. You’ll probably have to be in an area where you have at least a 10-to-1 ratio of experienced workers to job openings. In that case, you might have at least 250 machine operators that you might go after to hire.

It’s all metric-driven. Labor is really critical. Finding the supply, looking at how competitive demand is, and looking at the cost now and into the future as conditions emerge—that’s a huge part of it.

No. 2, a lot of these plants are looking for existing buildings. That’s another major consideration. The problem is that you may find a good location with a suitable labor market, but it might not have the buildings. It’s a trade-off.

Existing buildings are important because they allow a company to get into business quickly, start earning profits, and reduce the capital cost.

Reliable electric power also is important. Most of these metalworking businesses are not huge consumers of power, but they need reliable electric power.

Certainly transportation resources is another important consideration. If you are shipping a lot of this stuff by truck, I think you need to be no more than five miles from a limited access, four-lane highway. You want to have a lot of motor carrier service, especially if you can get back-haul opportunities.

Sometimes you need rail. And if you are a small user of rail, a Class 1 oftentimes has spotty service. So you may desire to be on a short-haul railroad if you need rail. That would be if you need only eight or so cars per year.

You also want your site to have all of the infrastructure in place. All the water and sewer ready to go. That’s key.

FAB: Should a metal fabricator looking at a move be concerned about local vocational schools?

DJD: You want to be in an area where you can have a role in shaping the training programs that can help your own company and industry.

You also want to look at the number of people that are graduating from the vocational programs with either certificates or associate degrees. That helps the labor market because they are supplementing it with more workers.

I have to tell you that being near a military base is a plus. There are a lot of people leaving the services, and they are good candidates to be potential employees.

FAB: Who should be a member of a metal fabricator’s site selection team?

DJD: The team should always be led by someone involved in operations. They have the most knowledge of what makes success in operations.

That could be the head of operations; the president, if it’s a small company; and sometimes the CEO. In the end, you need somebody who is a project manager that deals with operations.

Then the subdisciplines on that team include logistics and human resources. Rounding it out would be environmental, legal, and finance personnel.

FAB: Is it a good time for fabricators to consider relocation or expansion?

DJD: The economy is doing well. Many companies that might have once looked offshore are now building in the U.S. because we are so competitive. Companies that have made investments in technology and efficiency have reduced the labor content, so that means that the U.S. is much more competitive globally. But that also means that the skill level requirements become higher, and that talent is hard to find.

I see the metals industry expanding all over the country. It’s all over. It’s in Amarillo, Texas, to Buffalo, N.Y.

FAB: Can metal fabricators expect to extract incentives from local municipalities and economic development authorities pursuing a business to relocate to their area?

DJD: My advice for any company doing a site search is do not lead with incentives. That is not going to make a new successful enterprise. It only enhances the decision-making. Once you get to a short list, then get really serious about incentives.

That becomes part of the deal close. You take incentives, land, building, and other costs, and you put it together in a formula and apply it to the final locations. At that point it becomes like splitting hairs. Incentives could favor one location over another.

You have to be careful with incentives that you can’t use fully. Too many states are offering tax credits. Most of the capital investment incentives are tax credits. Generally speaking, they are not monetizable. Most of the companies can’t use them because they are really not profit centers; they are cost centers.

Some of the best incentives that metal fabricators could utilize are payroll incentives. For example, if a company could create a certain number of jobs at a defined wage level, the company could possibly get up to 5 percent of payroll for salary for up to 10 years. A lot of it is tied to the average wage. That can become a major incentive.

Then of course, depending on the community, if a company is looking at a business park that is owned by a development authority, they might write down the cost of the land and might help with the site preparation.

Also, some communities are able to offer a grant. It may not be huge, but it may be payable over several years to get the project going.

Then there is property tax abatement. That can be important on personal property because sometimes the investment in equipment is pretty substantial, and if the company can abate the tax on personal poperty, that is meaningful.

FAB: Any final recommendations?

DJD: Don’t get persuaded by taxes—in the beginning anyway. Don’t get swayed by incentives. And don’t get swayed by business climate surveys.

Dennis J. Donovan is responsible for worldwide site selection services at Wadley Donovan Gutshaw Consulting, 908-864-5580, www.wdgconsulting.com.

About the Author
The Fabricator

Dan Davis

Editor-in-Chief

2135 Point Blvd.

Elgin, IL 60123

815-227-8281

Dan Davis is editor-in-chief of The Fabricator, the industry's most widely circulated metal fabricating magazine, and its sister publications, The Tube & Pipe Journal and The Welder. He has been with the publications since April 2002.